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Alternative Market Briefing

Private equity fund performance falters in 2019

Tuesday, October 22, 2019

Bailey McCann, Opalesque New York:

New data from eFront shows that private equity performance faltered a bit in 2019.

LBO fund performance dipped from the record levels seen in 2017. For the US, active LBO funds are performing well when compared with the historical average, but the correction in valuations has moved more recent vintages down towards the average. Active Western European funds divide into two groups, with vintage years 2010-12 on track for outperformance, while funds of 2013-16 have less certain performance.

If the performance of active LBO funds has decreased, so has the risk. Selection risk (between the top and bottom 5% funds) fell between Q4 2018 to Q1 2019, and has since stabilized. At 1.308x, the current level is close to the lowest points of Q2 2017 and Q1 2012.

A longer perspective shows that the dispersion of performance of fund managers has been declining since 2010 on average. This is not a straight decline as the spike of 2016 shows. Nevertheless, after a period of stabilization in 2018, dispersion risk is on the decrease, nearly matching the historically low level of 2017.

"Should this marginally lower performance and sharply reduced risk seen since Q1 2017 be described as a 'new normal'? It is too early to say, but there is a visible downward trend in terms of selection risk," said Tarek Chouman, CEO of eFront. "The increasing maturity of the asset class and relatively benign macro-economic conditions can explain this risk-red......................

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